Question

Job Order Casting Case You are the Accountant for a Custom Furniture company. The company uses a job order costing system and applies overhead on the basis of direct labor hours. On January 31, 2019, Job No. 20 was the only job in process. On January 31, 2019, raw materials inventory consisted of $25,000. Job No. 22 was sold for $120.000 during January 2019. Costing information for jobs 20, 21 and 22 are below Job No. Direct Materials Direct Labor Direct Labor Hours 20 $ 8,000 $ 18,000 1.300 21 S 3,000 $ 12,000 BOO 22 S 7,000 $ 10,000 900 The predetermined overhead rate for 2019 is based on the company's estimated total manufacturing overhead during all of 2019 which is $1,020,000 and the estimated total direct labor hours of 34,000. The owner of the company does not have an accounting background and doesn't understand how the balances of the inventory accounts are calculated for January 31, 2019, nor how gross profit is calculated for Job No. 22. You are to: 1. Calculate the balances of the three inventory accounts 2. Calculate gross profit for Job 22 3. Meet with the owner and explain your results Performance Indicators 1. Correctly calculate predetermined overhead rate 2. Correctly calculate the balances of the inventory accounts 3. Correctly calculate gross profit for Job 22 4. Differentiate between the three inventory accounts 5. Explain the costs that go into cost of goods sold for a manufacturing company

Answer 1

Part A: Balance of all 3 Job accounts.

Customer Furniture Company (Job No. 20)
Date	Particulars	Amount	Date	Particulars	Amount
January	To Direct material	8000	January	By Loss	65000
	To Direct Labor	18000
	To Overhead	39000
		65000			65000

Customer Furniture Company (Job No. 21)
Date	Particulars	Amount	Date	Particulars	Amount
January	To Raw Material Consumed	25000	January	By Loss	64000
	To Direct material	3000
	To Direct Labor	12000
	To Overhead	24000
		64000			64000

Customer Furniture Company (Job No. 22)
Date	Particulars	Amount	Date	Particulars	Amount
January	To Direct material	7000	January	By Sales	120000
	To Direct Labor	10000
	To Overhead	27000
	To Gross Profit	76000
		120000			120000

Inventory Account:

For Job 20: As mentioned, Job 20 is already in progress, so inventory used is 8000.

For Job 21:  In Job 21, Inventory amount of $25000 purchased. Out of this, inventory of $ 3000 is used. So Balance inventory is 25000-3000 = 22000.

For Job 22: In this job, Inventory amount $ 7000 used, but during the month, full job was sold at $ 120000.So, there is no inventory pending after selling of Job.

Part B: Gross profit of Job No. 22 = $ 76,000.

Note: Calculation of Overhead for Each Job.

Overhead is based on Direct Labor Hours. As we saw in question that $ 1020000 is overhead of full year and Total Direct Labour Hours are 34000 for the year. So,

Overhead per hour = 1020000/34000 = $ 30 Per hour

Overhead for Job 20 = 1300 *30 = $ 39000

Overhead for Job 21 = 800 * 30 = $ 24000

Overhead for Job 20 = 900 * 30 = $ 27000

As per the above calculation,we determined that in Job 22, Gross profit is there after selling of Job. So, owner can go ahead with this.